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Guillermo Furniture Store Scenario

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Running Head: GUILLERMO'S FURNITURE STORE SCENARIO

Guillermo Furniture Store Scenario

University of Phoenix

Marie Williams

Guillermo's furniture store is located in Sonora, Mexico, owned by Guillermo Navallez. The company is currently experiencing many business related activities that have been discussed in this week's readings. The concepts, which grasped my attention while reading the scenario, were the principles of finance. To mention a few, I recognized financial self-interest, incremental costs and benefits, options, and actions. Within the next few sections I will discuss how these concepts are related to the Guillermo scenario.

The principles of finance describe typical behavior in financial transactions and provide guidance for decision making (Emery, Finnety, & Stowe, 2007). One principle that I found in the scenario was self-interested behavior. The self-interested behavior is when the parties make decisions based on the best interest of self. Guillermo business actions relate to this principle because of the choice Guillermo rose about distributing furniture for another competitor. Guillermo had an idea to coordinate his existing distributor network and become a representative for the competitor (University of Phoenix, 2009). This would have been more beneficial to Guillermo than to the competitor. Although the competitor would have been able to distribute in North America, this would have been their only perk. While the competitor may have thought about this plan as a good idea, Guillermo is raising their revenue by extending a hand to their competitor through its network connection.

The second concept I found in the scenario was incremental costs and benefits (cite, 2007). The incremental costs and benefits are those that would occur with particular course of action but would not occur without that course of action (Emery, Finnety, & Stowe, 2007). For Example, Guillermo is willing to network with a competitor because of the benefit it would have on Guillermo profit. Guillermo is currently worried about the competitor that has disrupted is profit by providing lower prices and able to provide exact specifications. If Guillermo business wasn't going to benefit from coordinating existing distributor network, then it wouldn't have made sense for them to do business with the competitor.

The third concept I think that Guillermo has addressed is the principle of Risk-Return Trade-Off. This principle states that if you want to have a chance at some really great outcomes, you have to take a chance on having a really bad outcome. Although using the competitor to gain profit can have a benefit to Guillermo, Guillermo is also taking a risk. If the competitor doesn't hold up to their end of the bargain, Guillermo will risk money invested and reputation. Guillermo has worked with their existing distributor for years and if the competitor isn't really ready to take this step, then it can be a risk to Guillermo reputation. Guillermo will also be investing more manpower to accommodate this new procedure, so if the competitor backs out then money will be wasted by Guillermo. Guillermo would inherent sunk costs. Sunk cost is a cost that has already been incurred; subsequent decisions cannot change it (Emery, Finnety, & Stowe, 2007).

The fourth concept found in the scenario was the principle of valuable ideas. Guillermo did research to find ways to enhance their profit abilities. Guillermo researched foreign competition and their high-tech solution to find ways to overcome their profit lose due to the competition. He found that if he used a computer controlled laser lathe to produce exact cuts in wood and purchased robots to perform precise movement and assembly he could decrease production costs. But taking this model into consideration Guillermo found that it would be very expensive.

In conclusion, when you review the Guillermo scenario you will find many finance related concepts that can be applied. In my findings I found that Guillermo engaged in the principles of finance. Guillermo scenario involves the principle of valuable ideas, risk-return trade-off, incremental cost and benefit, and self-interested behavior. These concepts are very common in the line of business. Managers at corporations run into these concepts often and use these types of concepts to make logical decisions concerning their company objectives.

Reference

Emery, D., Finnety, J. (2007). Corporate Financial Management (3rd ed.). New Jersey, NJ: Pearson-Prentice Hall.

University of Phoenix. (2009). Scenario: The Guillermo Furniture Store Scenario. Retrieved October 02, 2009, from University of Phoenix, Week One, rEsource. MBA 571-Corporate Finance Web site.



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